GST to benefit e-commerce the most

Will help resolve many supply chain issues that impact the sector

Introduction of the goods and services tax (GST) may be a big positive for the e-commerce industry. With no tax laws in place for the industry currently, tax is imposed based on the understanding of various state governments.

GST will help resolve many supply chain issues which impact the e-commerce sector. 

"GST when implemented will resolve many supply chain issues surroundings e-commerce. The shipment and returns across the country will be done more efficiently and with lesser paperwork. The efficiency in the supply chain will also mean quicker deliveries. Companies will also be able to execute more efficient supply chain strategies, with warehousing based on strategy rather than tax requirements (like Octroi). More importantly, with an uniform tax structure across India, goods can be priced and margins calculated properly without worrying about where the product is finally shipping," said Ashish Jhalani, Founder, eTailing India & ISeB. 

GST is a single comprehensive tax regime that will be applicable across all states in India on the sale, manufacture and consumption of goods and services. Since the same tax regulation will apply across different states, e-commerce companies (as well as those from other industries) will not have to struggle with the complex regulatory structure that currently prevails in the country. They will also be able to devise strategies in keeping with the GST norms. 

Ambareesh Murthy, founder at Pepperfry.com said, "The biggest benefit of GST is transparency and simplication of tax. Since each state has its own tax, GST will lead to common tax and ease in transportattion of goods. It will make life easy for those who sell across the states."

GST, which will be levied on both goods and services, will replace most indirect taxes with a single tax. It would have a dual structure — a Central component levied and collected by the Centre and a state component levied by states.

While at the Central level, GST will subsume Central excise duty, service tax and additional customs duties, at the state level it will include value-added tax, entertainment tax, luxury tax, lottery taxes and electricity duty. VAT, however, will be charged on each stage of value addition. 

GST would also help address challenges like the one faced by the Karnataka tax authorities where concerns about tax evasion by Amazon India were brought to the fore. Questions were raised about why Amazon and its sellers were paying no VAT for operating from the company’s warehousing facilities on the outskirts of Bangalore. The situation may have been different if clear laws had been formulated for the e-commerce industry. The standoff is more a result of difference in interpretation of the vague laws by Amazon and the state tax authorities.

"Since Amazon operates on the 'marketplace' model and only provides a platform for buyers and sellers to transact (not engaging in any selling directly), its reasoning was that it should not come under the purview of sales tax or VAT (the website gets a commission from sellers for facilitating sales) and that only service tax was applicable to them. On the other hand, its sellers, who were stocking their goods in Amazon’s warehousing facility, were designating it as 'an additional place of business' in contravention of the state’s VAT rules. The state tax authorities then ordered Amazon to discontinue selling some products from its Bangalore warehouse by cancelling the licenses of about 100 of its sellers. Consequently, the company had no choice but to cancel many orders for those particular products and bear losses," explains Jhalani.

The roll-out of GST is likely to simplify the logistics issue for e-commerce companies. Also, the practice of companies to minimise their tax liabilites by finding loopholes in existing sourcing, distribution and warehousing strategies will have to undergo a change.